Bigger Fool Theory

What is Bigger Fool Theory..?

The Bigger Fool Theory (or Greater Fool Theory) is a frequently applied theory in stock markets across the world that states, it’s possible to make money by purchasing securities regardless of whether or not they are overvalued, and later selling them at a profit because there is always a bigger or greater fool who would be willing to pay a higher price.
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While dealing in the stock market in accordance with the bigger fool theory, an investor purchases questionable securities without even giving a second thought about their quality, however, with a sense of optimism about selling them off to the bigger fool (who, in turn, might also want to flip them at the earliest possible).

But there is a flip side too. For example, speculative bubbles always burst eventually, thereby stairway leading to a rapid depreciation in the share price as an inevitable outcome of that selloff.

Edited and Updated 13th January 2014

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